US semiconductor company Qualcomm Inc. unveiled a sweetened US$44 billion agreement to acquire NXP Semiconductors NV, the most defiant move in its defense against a hostile US$121 billion bid from Broadcom Ltd., Reuters reports.
The new deal puts pressure on Broadcom to decide if it will stick with a stipulation in its bid that Qualcomm does not raise its offer for NXP. It could strengthen Qualcomm’s defenses because it allows its shareholders to better assess the standalone value of Qualcomm as an alternative to a deal with Broadcom.
Qualcomm shares fell 1.3 percent to US$63.99, significantly below Broadcom’s latest US$82 per share cash-and-stock offer unveiled on Feb. 5, as investors saw the new NXP deal as increasing the chances of Qualcomm repelling Broadcom.
Broadcom said on Tuesday it was evaluating its options in response to Qualcomm’s move and noted that the revised price for NXP was well beyond what Qualcomm has repeatedly characterized as “full and fair”. It called the new deal a transfer of value from Qualcomm shareholders to NXP shareholders.
In an interview with Reuters, Qualcomm’s presiding board director Tom Horton argued that the revised deal with NXP represented value for Qualcomm shareholders irrespective of the outcome of the takeover battle with Broadcom.
“It makes Qualcomm stronger and more profitable and diversified if there is no deal with Broadcom, and if we do decide to pursue a sale the same is true, more value would accrue to the Qualcomm shareholders,” Horton said.
Qualcomm raised its offer for NXP from US$110 to US$127.50 per share in cash. In exchange, it received binding agreements from nine NXP stockholders that collectively own more than 28 percent of NXP’s outstanding shares to support the deal. These include hedge funds Elliott Advisors (UK) Ltd. and Soroban Capital Partners LP, which had spearheaded opposition to the NXP deal.
NXP’s shares rose 6 percent to US$125.56. The stock had traded above the original offer price for nearly seven months, reflecting expectations among investors that Qualcomm’s offer would be raised.
NXP shareholders have to tender their shares in an offer that is currently set to expire on March 5, though Qualcomm has repeatedly pushed back this deadline as it awaits clearance from China’s Ministry of Commerce, the only regulator globally needed to approve the deal that has yet to do so. The Lunar New Year holiday this month has delayed this review.
Under the new terms agreed with NXP’s board, the deal with Qualcomm is contingent on 70 percent of NXP’s shares being tendered, instead of the 80 percent threshold required in the earlier agreement signed in October 2016. Once this threshold is reached, Qualcomm can take over the entire company through a “second-step” transaction mechanism.
The new NXP deal came less than a week after Broadcom and Qualcomm executives met face-to-face for the first time to discuss the differences between the two sides. Qualcomm called the meeting constructive but reiterated it had several concerns over price and regulatory risk.
The acquisition of NXP will help Qualcomm to expand in the fast-growing market for chips used in automobiles and reduce its dependence on the competitive smartphone market.
The takeover battle between Qualcomm and Broadcom is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc. and Samsung Electronics Co. Ltd. use their market dominance to negotiate lower chip prices.
Singapore-based Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. San Diego-based Qualcomm primarily outsources the manufacturing of its chips which are used for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.
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